E-COMMERCE: China E-Commerce Answers Beijing’s Import Call

Bottom line: China's drive to boost imports
will benefit the nation's big e-commerce companies with
cross-border trade capabilities, though such purchasing will still
be a small fraction of their overall volume.

It may be election day in the US, but here in China the focus is
decidedly on imports with the staging this week of a massive
import-focused expo in Shanghai. This particular event, officially
called the China International Import Expo, has
big political overtones, which I've looked at in a bit more depth
in my weekly column on doing business in China, for anyone who is
interested. (English
article)

I'll recap that element briefly in a moment, but the focus of
this post will fall squarely on some relatively big numbers coming
out of three of China's leading e-commerce companies, in terms of
the kinds of imports they think they can facilitate over the next
few years. One report has added up commitments from Alibaba
(NYSE: BABA), JD.com
(Nasdaq: JD), Suning (Shenzhen: 002024) and
NetEase (Nasdaq: NTES), and determined the four
have collectively said they could facilitate 1.5 trillion yuan in
imports, equal to about $216 billion. (Chinese
article)

While that number looks impressive as a headline figure, it's
helpful to parse it up a bit to see what it really means,
especially since the lion's share comes from a fuzzy forecast from
Alibaba. I'll also offer my thoughts on whether this kind of figure
is really reachable, in the context of how much Chinese are
importing now and what, if anything, may change after this massive
government-sponsored even in Shanghai.

Just about everyone is aware of the ongoing trade war between
the U.S. and China, and one of Donald Trump's biggest grievances is
the massive trade imbalance between the two countries. To address
that, Chinese President Xi Jinping wants to show that China will
step up its import game, and this particular import expo has been
billed as one of the president's periodic "signature events",
meaning it's at the top of his agenda.

When these kind of agenda items pop up, everyone in China,
including private companies like Alibaba and JD, and especially big
state-owned companies, tend to quickly jump in to show they are
supporting the cause and curry favor with the government. In this
case Alibaba has made the biggest commitment by far, saying it will
facilitate $200 billion -- far more than any of its rivals -- in
imports over the next five years.

Alibaba announced an A-list of foreign partners who will help to
fuel that drive, running the range from Japanese watch maker
Casio to French food specialist
Danone and South Korean electronics giant
LG. A little math will show the figure breaks down
to $40 billion in imports each year, which looks relatively large
when one considers the value of all goods traded on the company's
China marketplaces last year was worth about $700 billion. But
Alibaba was never one to think small, and the roughly 5 percent
ratio represented by the $40 billion figure doesn't really look all
that unreasonable.

More Modest

Next there's JD, which said that during the Expo period it
signed orders to import nearly 100 billion yuan worth of goods,
equal to a far more modest $14 billion. Suning put its orders
signed during the Expo at a similar level of about 15 billion
euros, while NetEase said its cross-border trade platform called
Kaola had signed 20 billion yuan worth of orders, equal to a
relatively modest $3 billion.

The list of products covered by the four companies are quite
diverse, though infant care, makeup and electronics products seem
to be a few of the favorites. The fact of the matter is that
Chinese consumers have shown a growing penchant for buying these
kinds of products from abroad due to higher quality of such
imports, and that trend is unlikely to change. In fact, I do think
the JD, Suning and NetEase figures would have been attainable in
the normal course of business with or without the help of the
expo.

Alibaba's figure is the most likely to be possibly exaggerated,
as founder Jack Ma is often prone to doing. The company most
recently said it aimed to serve 2 billion customers globally by
2036, equal to more than a quarter of the world's current
population, which seems like a bit of a stretch. (previous
post)

But the bottom line in all this is that imports are clearly
growing in China, and perhaps they will grow even more quickly now
with Beijing's blessing. That should be good news for
retail-focused e-commerce companies as a whole, especially ones
with strong cross-border trading platforms like Alibaba, JD, Suning
and NetEase.